MGT 4394 Midterm

strategic management

is the dynamic and ongoing process of managing a firm’s approach to strategy. Strategic management follows a structured process to methodically and thoroughly analyze the environment, industry, and firm as well as to formulate and implement strategy

key question answered by strategic management

why do some firms outperform other firms?

strategy

is a collection of organizational plans and
processes that focus on creating and sustaining superior
firm performance relative to a company’s competitors,
which creates a sustainable competitive advantage.
Strategies are broad and long range, with few specifics.
They do not typically address actions.

3 principles underlying strategy

creating a unique and valuable position, making trade-offs by choosing what not to do, creating fit by aligning company activities with one another to support the chosen strategy

2 major processes of strategic management

formulation of strategy, implementation of strategy

5 types of strategy(Mintzberg and Walters) 

intended, emergent,
deliberate, realized, and unrealized

intended strategy

the strategy an organization hopes to execute; described in detail in strategic plan

emergent strategy

an unplanned strategy that arises in response to unexpected opportunities and challenges

realized strategy

the strategy that an organization actually follows; a product of intended strategy, deliberate strategy, and emergent strategy

deliberate strategy

the parts of the intended strategy that the firm continues to pursue over time

unrealized strategy

a strategy that was developed but not accomplished; the abandoned parts of the intended strategy

SWOT analysis

strengths, weaknesses, opportunities, threats; incorporates idea of scanning elements both internal and external to the firm

strategic issue

is the most important, urgent, broad, long-term matter that
the company is facing. Strategic issues are the result of multiple causes in multiples areas of a business and require significant organizational talent and resources to resolve. Addressing a strategic issue moves a firm toward its
mission, purpose, and vision, and it should therefore be congruent with the firm’s values and goals. A strategic issue focuses on the present and specific organizational context, addressing what is happening with this firm at this
time, in this place, and under these circumstances.

3 questions to answer for strategic management

where are we?; where are we going?; how are we going to get there?

organizational performance indicators

quantitative measures that indicate how an organization performs in comparison to historical trends and/or competitors; answers "where are we?"

examples of organizational performance indicators

quality measures, productivity measures, HR indicators, customer satisfaction/retention

vision

what the organization hopes to become, its aspirational goal for the future; the big goal it wants to accomplish; developed within the mission and aligned with core values

mission

an organization's purpose, why it exists, beyond making a profit; captures key elements of the past and present. Guides stakeholder engagement (employees, customers,
partners)

value

Core guiding principles for decision-making and behavior.
• Influences organizational culture and stakeholder perception

strategies

a broad goal that an organization needs to achieve to be successful in the marketplace; developed to work towards vision; answers "how are we going to get there?"

goals

narrower targets that should provide clear and tangible guidance to employees as they perform work on daily basis; created to achieve vision and mission

SMART goals

goals that are specific, measurable, attainable, realistic, and time-bound; the most effective goals

value statement

performance measure

quantitative measures that indicate how an organization performs in comparison to historical trends and/or competitors; examples are profits, stock prices, sales

performance benchmark

provide context by comparing an organization’s metrics to its
previous results or to those of competitors. For example, a company showing a profit
margin of 20 percent in 2024, might seem like a strong performance. However, if that
same company had a profit margin of 35 percent in the previous year, and the industry
average for 2024 was 40 percent, this new result would indicate a decline.
Performance Measures and Performance Benchmarks

current ratio

liquidity measure that tells if obligations can be paid when due; if above 1.0, firm has enough cash to pay its bills

debt-to-equity ratio/debt ratio

leverage measure that tells if debt level is high, the extent to which borrowed money is used

net income

profitability measure that tells how much profit is being made

3 main areas of organizational performance

financial (ROI, debts, profits, stock price), market (market share, new products), shareholder value

competitive advantage

when the economic value creation of a firm is greater than its competitors; equals WTP (willingness to pay) minus Cost (cost incurred to produce product)

2 components of competitive environment

the general environment, the industry

the general environment

macro-environment; includes overall trends and events in society such as social trends, technological trends, demographics, and economic conditions; cannot be controlled

the industry/competitive environment/task environment

consists of multiple organizations that collectively compete with one another by providing similar products; includes competitors, customers, suppliers

PESTEL analysis

general environment analysis that evaluates 6 forces on industry macro-environment; political, economic, sociocultural, technological, environmental, legal; impact can be positive or negative

Political

segment centers on the role of governments in shaping business; tax policies, trading, tariffs, stability, immigration, political positions

Economic

segment centers on economic conditions within which organizations operate; interest rates, inflation, GDP, unemployment, growth/decline of economy; MOST INFLUENTIAL for non-essential luxury goods!

Sociocultural

segment which includes trends in demographics and culture; population, age, ethnic mix, attitudes, consumer activism, tastes and preferences, concerns

Technological

segment centers on scientific improvements in products and services; new products, automation, delivery, communication technology, AI

Environmental

segment involving physical and ecological conditions; natural disasters, pollution, climate change, weather patterns, energy, natural resource availability, environmental regulation

Legal

segment centers on how courts and laws influence business activity; employment laws, health and safety regulations, discrimination laws, antitrust laws

Porter's Five Forces Analysis

identifies how much profit potential exists in an industry; threat of potential entrants, bargaining power of suppliers, competitive rivalry, bargaining power of buyers, threat of substitutes

evaluating Porter's Five Forces

if none of the forces undermine profits, the profit potential is strong; if the forces work to undermine profits, the profit potential is weak

ADVERTISING

threat of potential entrants

firms not currently considered viable competitors in industry but may become viable competitors in the future; high barriers to entry mean safer defensive position and low threat of new entrants

bargaining power of suppliers

those that provide inputs firms in an industry need to create products to sell to buyers; can suppliers demand higher prices, number of suppliers, relationships with suppliers

competitive rivalry

firms that produce similar products/services; high rivalry reduces profit potential, price wars

bargaining power of buyers

firms that buy directly from industry or end users; can buyers demand lower prices, many options, number of buyers

threat of substitutes

offerings that differ from product provided by competitors in an industry but fill similar needs; examples are satellite TV and streaming services and cable or soda and sports drinks

substitutes

product or service that comes from outside the existing industry but fills the same "need" while offering some additional value; can disrupt industry

strategic groups

sets of firms that follow similar strategies to one another or have similar characteristics within an industry; competitive factors on two axes

2 methods of internal assessment

Resource-Based View (RBV) and Value Chain Analysis

Resource-Based View (RBV)

model that examines any resources or capabilities of the firm that may provide a competitive advantage; done via VRIO analysis; the whole is greater than the sum of its parts

Value Chain Analysis

each element of a firm's primary and support activities are examined to find competitive advantages; can identify weaknesses to be addressed and places to add value

strategic resources

a resource that is valuable, rare, difficult to imitate, and organized to capture value

valuable

resources that help improve organizational effectiveness and efficiency in face of competition

rare

resources held by few or no other companies

difficult to imitate

resources with legal protections or those that take time to develop fully (brand name); hard to duplicate

organized to capture value

having systems, processes, structure to capitalize on potential of resources to provide competitive advantage

resource

what an organization owns; assets for strategy that can be tangible or intangible

tangible resources

those that can be readily seen, touched, and quantified; cash, equipment, property

intangible resources

those that are difficult to see, touch, or quantify; more likely to meet criteria for strategic resources than tangibles; reputation, knowledge, patents, skills, brand names, culture, advertising

capability

what the organization can do; abilities that deploy a diverse set of resources; customer service, procurement, development process, innovation

core competence

unique strengths, embedded deep within a firm to differentiate its products from rivals

dynamic capability

exists when firm has unique ability to create new capabilities to keep pace with changes in environment

distinctive competence

a set of activities that an organization performs especially well

VRIO analysis

if not valuable = competitive disadvantage; if not rare = competitive parity; if not difficult to imitate or organized to capture value = temporary competitive advantage; if all 4 = sustained competitive advantage

intellectual property

creations of the mind; some protected by law, others best defended by secrecy

4 main types of intellectual property

patents, trademarks, copyrights, trade secrets

patents

legal decrees that protect inventions from direct imitation for a limited period of time

trademarks

phrases, pictures, names, or symbols used to identify a particular organization; give identity and niche

copyrights

provide exclusive rights to the creators of original artistic works such as books, movies, songs, and screenplays for an author's lifetime plus 70 years; can be sold and licensed; piracy is an issue

trade secrets

refer to formulas, practices, and designs that are central to a firm's business and that remain unknown to competitors; examples are KFC spice blend, Coke formula

isolating mechanisms

methods that prevent a competitor from imitating the resource or capability that provides a competitive advantage so the firm can sustain the advantage longer

3 isolating mechanisms to lessen likelihood of imitation

social complexity, path dependence, and causal ambiguity

social complexity

the interrelationships within a firm and its networks and history; certain customer or supplier relationships or with key political figures

path dependence

the historical path a firm takes over time, including decisions, accumulated learning, and experience gained

causal ambiguity

the reason for achieving a competitive advantage is not apparent, and therefore difficult to imitate

value chain

the paths and steps by which products are created and sold to customers, including primary and supporting activities; overall intent is to produce profit margin, find weaknesses to improve, AND ADD VALUE

primary activities in value chain

inbound logistics (arrival of raw materials), operations (production process), outbound logistics (movement of product to customer), marketing and sales, service (assisting customers)

support activities in value chain

firm infrastructure (how firm is organized and led), human resource management (recruitment, training, compensation), technology development, procurement (inventory and raw materials)

SWOT techniques

leverage strengths, mitigate or resolve weaknesses, capitalize on opportunities, and protect against threats; brainstorming tool

strategic issue

primary matter faced by an organization that must be addressed or resolved to survive, excel, or achieve a goal

characteristics of strategic issues

long-term issue, difficult or impossible to avoid, becomes strategic focus of firm, one concise sentence, starts with "how", changes over time, result of multiple causes

generic business-level strategy

Is the strategy of a strategic business unit.Strategic Business Unit. A strategic business unit is a fully functional unit of a
business that has its own vision and direction and may be
part of a larger organizational unit like a division.
The unit’s focus and structure may be based on factors such as
markets served, products offered, or regions served. Smaller firms may have only one strategic business unit, and large corporations may have more than one strategic business unit.

key questions addressed with a business-level strategy

who (which customers to serve?), what (what customer needs to satisfy?), why (why do we want to satisfy them?), and how (how will we satisfy them?)

5 generic business-level strategies

broad cost leadership, broad differentiation, focused cost leadership, focused differentiation, best cost

2 competitive dimensions of business-level strategy

strategic position (cost or differentiation), competitive scope (narrow or broad)

broad cost leadership

offering the lowest prices in the market for that product or service; rely on economies of scale; example is Walmart, Payless Shoes

economies of scale

created when the unit cost of goods and services decreases as a firm is able to produce and sell more items

broad differentiation

offering something unique that differentiates their product from others; creates loyal customers; example is Nike, Disney, Starbucks

focused cost leadership

provide lowest cost to a narrow, niche target market; example is Redbox, Claire's

focused differentiation

provides a unique or differentiated product or service to a narrow, niche target market; example is sports cars, Mont Blanc pens, Whole Foods

best-cost

firm attempts a hybrid of lower cost and differentiated products that customers find desirable; can get "stuck in the middle"; example is IKEA, Target, Southwest

"stuck in the middle"

firms attempting best cost strategy that are unable to achieve either one effectively; example is Arby's, Sears

Strategic leadership

includes the responsibility, talent,
capacity, power, and actions necessary to steer an
organization strategically though a dynamic market to
create and sustain a competitive advantage and to
become and remain an industry leader.

Strategic analysis

Is the process of applying
strategic management concepts and theories by using
analytical frameworks and tools to conduct a thorough
360-degree analysis of a firm.

This enables strategy managers to make evidenced-based
decisions about strategy formulation and strategy
implementation in all areas of the company’s operations

Strategic alternative

is an action that
addresses and has the potential
to resolve every aspect of a strategic issue.16

Corporate-level strategy 

A companywide strategy that
focuses on synergy across industries, markets, market
segments, locations, and businesses.
The corporate level of a company consists of senior
executives in the C-suite, and if the company is large
enough, it includes the board of directors 

Where to play? 

Strategies Embedded in to Business-Level Strategies 

Innovation strategy
Sustainability and ethics strategy
Technology strategy
Multinational strategy

functional-level strategy

focuses on
implementing strategy in business support
units.